Keeping the lights on more crucial than cutting emissions, says Kerry Schott

Australians may want more emissions cuts from electricity generators but we need to make sure we have enough power to keep the lights on, the head of the group tasked with reforming Australia’s electricity landscape says.

Energy Security Board chairman Kerry Schott conceded that a lack of emissions reduction policy had stymied investment in energy generation but said the National Energy Guarantee was an opportunity to combine emissions reductions with ensuring there is reliability and dispatchable energy.

Dr Kerry Schott heads the Energy Security Board, which has been tasked with reforming the National Electricity Market.Credit:Christopher Pearce

The ESB is responsible for designing the first major energy policy Australia has seen in years, and as part of that will reform and direct the National Electricity Market.

It plans to bring it in by the end of the year but is facing a difficult task of juggling the demands of industry, the public and politicians to create a policy that enables Australia to reach its Paris climate change agreement targets.

Advertisement

"One of the big things that has plagued this industry for decades is the lack of a national emissions policy," Dr Schott said.

"For those that would like to see further emissions reductions – and that’s probably most of the population – the balancing act here is to make this transformation in a way that’s affordable so that you don’t retire [coal] plants unduly early." <!--ffxnote-->

Energy giants<!--ffxnote--> Origin and AGL have also outlined the potential for more ambitious carbon emission reduction targets.

Beyond business, states governments are also looking to take greater control of their emission levels.

Dr Schott said as emissions targets rise in individual states, so will their reliability needs<!--ffxnote--> which will require more investment in electricity generation that is dispatchable, or can be ready to go with the push of a button.

She also dismissed reports of states' butting heads with the federal government over the splitting of emission targets, which could potentially force some states to bear a greater proportion of the NEM-wide target than others.

Currently some states, such as Victoria and the ACT, have a higher emissions reduction target than others.

"Well, actually all the states are doing a fair amount of lifting in this area and I don’t get a sense at the Council of Australian Governments that there’s any anxiety about someone doing more than somebody else," Dr Schott said.

She dismissed suggestions the federal government could institute a single NEM-based target replacing individual states’ commitments.

Reliability

Dr Schott said the key aspect of the National Energy Guarantee was keeping the lights on.

"We can introduce this in a suck it and see it sort of way, as not all the jurisdictions are going to be caught by the same reliability obligations for their retailers and others won’t be as caught by their emissions obligations either," Dr Schott told Fairfax Media.

"So we can introduce this in a gradual way, have trials and see how it goes and if it doesn’t go too well, we can tweak it on the way."

Federal Environment and Energy Minister Josh Frydenberg said the NEG is about aiding this ongoing transition.

"The National Energy Guarantee will deliver a more affordable and reliable energy system as we transition to a lower emissions future. Under the guarantee, households would be $300 a year better off when compared to Labor’s plan," Mr Frydenberg told Fairfax Media.

The NEG aims to address the issue of keeping the lights on while rolling back power prices.Credit:Luis Enrique Ascui

Not all states will have reliability issues, with Dr Schott pointing to Queensland and Tasmania as two regions bucking the instability trend due to the abundance of gas power in Queensland and hydro in Tasmania.

"So if you’re a retailer in that space you don’t really have to worry about it, but if you’re a retailer in South Australia, or perhaps later in Victoria or New South Wales, you might need to," she said.

Dr Schott said one of the biggest barriers to ensuring the NEG has flexibility is knowing what it wants to achieve.

"The biggest hurdle is always specifying clearly what the problem is, if you ask the right question that’s the first step to finding it out." <!--ffxnote-->

"It sounds a bit silly but if someone says, ‘We’re really worried about supply,’ does that mean capacity generally or just this sort of fast response capacity?

"The main question that we’ve been making sure that we’re very clear that we’re addressing has been around reliability issues and what do we mean, and this often strays into security which is about keeping the system stable ... we do have a problem with that, but we have to fix reliability and make sure that the mechanisms for security are meshing in and emissions sit with the reliability."

<!--ffxnote-->

Loading

The energy guarantee is already seeing its first trial as a potential mechanism to encourage investment in new energy generation, even ahead of it being implemented.

The Australian Energy Market Operator warned that if AGL does not follow through on its plan to replace the energy lost when it closes the Liddell coal-fired power plant, then there is the potential for mass blackouts in NSW.

However, AEMO believes that the NEG – if it passes – can act to provide an impetus for others in the market to build their own generation, without the need to rely on AGL.

Following the passing of the NEG, the Energy Security Board could look to making it a truly national piece of legislation by including Western Australia and the Northern Territory, Dr Schott stating it could become part of the next stage of the National Energy Guarantee, following its planned passing later this year.

When asked if she had enjoyed working on the energy policy, Dr Schott laughed, saying, “so far”.

<!--ffxnote-->

The Council of Australian Governments meeting is slated for April 26.

Following design work off the back of this meeting, the ESB will return to COAG in August with a scheme already piloted and ready to be implemented.